Plausible deniability strikes again!
This time through a private luncheon Janet Yellen attended with Senate Democrats. Before everyone gets too up in arms as I see some sites are already doing, looking at who Chuck Schumer's top contributors are and wondering (I guess you could call it), whether he let them know what his message "from Yellen" was before divulging it in an interview. Yes, this does have the appearance of impropriety and rightfully so, an independent F_E_D chairperson shouldn't even give the hint of impropriety (considering some of the most profitable traders are Congressional staffers), however to be fair, Yellen has attended numerous private events with both Democrats and Republicans including luncheons like today with both sides, not that I think this is the kind of behavior a F_E_D chairperson should engage in, it just doesn't look good.
Many were wondering, after yesterday's more hawkish than usual F_O_M_C policy statement, which F_E_D member would be out today to walk the market back from the edge, the obvious choice would be Bullard, but it appears to have been Yellen herself, however as we have been pointing out since Bernanke was doing it (or Greenspan with his "Greenspeak"), the statements they make or the way in which they do it, they ALWAYS maintain plausible deniability. I can't remember the specifics but I think it was around the change in F_E_D guidance from Qualitative in which actual dates were given to Quantitative, which as I pointed out at the time, are very ambiguous, they can be made to reflect anything you want, they don't hold your feet to the fire like a quantitative guidance which is derived from qualitative guidance anyway.
From what I recall, this was disclosed first in Bernanke's presser after the F_O_M_C and then more specifically in the release of the minutes from that meeting. Just like now, the minutes and change in guidance came off super hawkish, introduced uncertainty which the market hates and had a bad reaction. If I remember correctly, it was after the close the very same day the minutes were released that Bernanke made a statement that was ambigouos, but gave the very specific impression of a much more dovish stance than what the minutes disclosed, then later when the F_E_D did exactly what the minutes suggested and the opposite of the impression Bernanke gave the day the minutes were released in walking the market back from the edge (after the close), Bernanke made clear, "I never said any such thing" and just as I warned the day he said it, "It was plausible deniability", he was doing what Cramer talked about in the infamous Street.com interview (the one he wishes he never gave). Bernanke created an impression, but in a very ambiguous way that later allowed him to deny he said any such thing which is exactly what he did and he was right, he didn't say what the market had "INTERPRETED, although that was his intention... he left enough room for "plausible deniability".
Now in some ways I agree with the more "conspiracy minded", I've NEVER heard of F_E_D policy being disseminated through a private luncheon by politicians the day AFTER an F_O_M_C meeting that created a very hawkish tone. IN FACT, I'VE NEVER HEARD OF F_E_D POLICY BEING DISSEMINATED THROUGH PRIVATE MEETINGS WITH POLITICIANS EVER, it runs contrary to the F_E_D's supposed independence...Heck, they barely give any useful guidance at the twice a year public Humphrey Hawkins testimony in front of Congress.
So, the appearance of Yellen today and certainly the "spill" of F_O_M_C policy is WAY BEYOND coincidence and the more conspiracy minded are right in having anticipated some speaker to come out and walk back the market from yesterday's hawkish tone.
Apparently the comments that are now being taken as Gospel as far as F_E_D guidance, which came from Chuck Schumer and was,
“Her message is that the economy’s getting better but there’s still a ways to go in terms of job creation,” “That worry seems, in her mind, to be paramount and that’s why she is not going to raise rates immediately.”
Beyond the ambiguity of the statement itself with words like, "seems", "in her mind" as opposed to the full voting F_O_M_C and of course "Immediately", as you know the F_E_D can call emergency intermetting- meetings.
Okay, lets walk back from speculation and emotional biases. The F_O_M_C policy statement was clearly hawkish, I warned before hand that the removal of the "Considerable Time" phrase alone was enough to make the market take a step back and view it as troubling.
The best possible definition regarding "Patience" as it relates to the timing of rate hikes we have was Janet Yellen on record, not off record at a private event with information passed on second hand, but during a F_O_M_C presser by Yellen herself. The term "Patient" toward the timing of a possible rate hike was a "Couple" of meetings, when pressed on the definition of "a couple", Yellen said a couple is, "2". Thus, as best as we have it officially from the mouth of the horse in an official capacity, "Patience" has been best defined as 2 meetings.
The removal of "Considerable Time" was done for a reason, it implies more than a "couple" where as "Patient" could mean anything from the next meeting to a year away, "Considerable Time" has considerably longer connotations and thus there was a reason it was removed from yesterday's F_O_M_C policy statement in a "slow-boil the frog manner. First the term "Patience" or "Patient" was added to the "Considerable Time" and then "Considerable time " was removed and "Patient" replaced it in an otherwise, hawkish statement, thus it was taken hawkishly.
Carrying on with what we "KNOW", we know that, "Solid Job Gains" was upgraded to, "Strong Job Gains". Economic Activity was upgraded from a "Moderate Pace" to a "Solid Pace".
As pointed out last night, the economic data for 2015 is hardly deserving of an upgrade since the last meeting, see last night's Daily Wrap in which the Bloomberg Macro-Economic Negative Surprises were at the worst start of a year in more than a decade! While I can't take issue with job gains, we do know via recent earnings that there have been thousands of corporate layoffs, yesterday's Dallas F_E_D showed 11% of respondents had lay-offs. The strong dollar, as mentioned last night does not look to make things better and although things may change, I don't see the mechanism in which the Dollar will moderate against the Euro and Yen especially with ECB and BOJ QE.
There were no hawks dissenting from yesterday's policy so I'm guessing that there wasn't anything that they were too upset with, especially as the "Considerable Time" language was removed, which for the market, was synonymous with, "Not for a while still".
I don't pretend to know when the F_E_D will hike rates, I'm looking for evidence as you know now via the bond market, but I do know that today's Schumer circus was the biggest and best example of the plausible deniability scam we have ever seen by a F_E_D member. Not only was this a private LUNCHEON with absolutely no minutes or record of what was said, the actual market moving information came from a second hand source repeating his "interpretation" of what he heard. Yellen could raise rates tomorrow in an emergency meeting of the F_E_D and have the easiest time ever denying that she said anything of the sort, maybe something like...
"Yes I attended a Democratic luncheon as I customarily do with both Democrats and Republicans and we did talk about some of my views and concerns which were also made public in the F_O_M_C policy statement the day before so no special information was given. In no way did I give any guidance on when rates would rise, in fact as you know the F_O_M_C is made up of 12 voting members and the remaining non-voting regional F_E_D bank presidents not only attend the F_O_M_C meeting, but participate in and contribute to the shaping of F_O_M_C policy. So even if I wanted to give specific guidance to the members of the Senate Democrats which would be improper, it would be impossible for me to do so because I am one of 12 voting members and many additional presidents shaping policy. I can't take responsibility for what Chuck Schumer may have thought he heard or how he interpreted the diverse subject matter of the luncheon."
In other words, while expected, this was the largest set up of plausible deniability ever given by a F_E_D member or chairperson, not only was it an unofficial gathering with no minutes or evidence of what was discussed, but the words/message didn't even come from her mouth like Bullard, but rather a second hand source and politician at that. That is Plausible Deniability which is how the F_E_D works in creating an impression without committing to a stance.
In any case, the market today was essentially no different from our forecast for the day in yesterday's Daily Wrap which was specifically,
"All of the averages ended the day like this so they "should" pick up where they left off on the intraday charts and see some continued negative action tomorrow morning...Price Down/Volume up, which is essentially like seeing a Hammer candlestick on a daily chart on 3x average volume, it's a 1-day short term deeply oversold condition that suggests the next day close green...SO I EXPECT THERE TO BE SOME BOUNCE TOMORROW PERHAPS AFTER SOME EARLY MORNING WEAKNESS"
After this morning's weakness which sent ALL major averages below the level at which QE3 was discontinued, we saw the early morning weakness burn-off, almost exactly when we predicted which was after the 11:30 European close, we saw numerous divergences (positive) building and the market move higher exactly as we forecasted yesterday with ALL of the major averages closing Green EXACTLY as forecasted yesterday.
Looking at the chart, you'd hardly know there was a F_E_D "message" today beyond the expectation we already had last night for the market today; it would be challenging to pick out the exact spot Schumer's interview hit the wires.
However all of the averages that did move to red intraday vs the end of QE3 (as most were there yesterday), all moved green since QE3 ended by the close today.
Gold as we have been expecting or GLD, pulled back GLD on Track and closed down -2.16%, we still have further to go and SLV was smashed at -5.75%.
After today's apparent continuation of a head fake move below USO's range, setting a new intraday low, USO closed higher at +.72% as we have expected and we expect more as you know, USO Update & Effects.
As for Leading Indicators, VXX outperformed its correlation vs the SPX intraday, TLT underperformed after yesterday's big short squeeze on the long end of treasuries causing a divergence with yields (see below)...
Despite the longer, bigger picture signals from HYG (High Yield Credit ) 3C charts which are falling apart, Closer to a Bounce Intraday, but Closer to the End, as I posted earlier today the HYG 1 min intraday chart was in line and it played no small role in propping up the market today...
HYG vs SPX clearly leading intraday, but once again, the more important information is on the HYG charts right here, Closer to a Bounce Intraday, but Closer to the End.
Although Yields led as they should early in the day, by 2-2:30 they diverged, not in a huge way, but we'll see where it leads...
Also of some interest, at least on of the HY Credit assets pulled a similar divergence...
The Dominant Price/Volume Relationship today was Close Up/Volume Down, this is the most bearish of the 4 possibilities, often it results in a 1-day oversold condition with a red close the next day, the exact opposite of last night's P/V Dominant Relationship.
Perhaps just as interesting, all 9 of 9 S&P sectors closed green with Consumer Discretionary leading at +1.36% and Energy lagging at +33%. Of the 238 Morningstar groups I track, a whopping 209 of 238 closed green, this looks like a strong 1-day overbought condition that would normally close the market red the next day.
However, tomorrow is an op-ex max-pain pin day, which should open around today's close and hang around that area until about 2 p.m., I'll be watching intraday charts for any additional directional information.
The averages closed out the day mixed as far as 3C divergences, the SPX looks like it should continue higher in the morning while the NDX and IWM look like they should see some downside, but again I think the Op-Ex pin will have the strongest influence on early price.
As usual, the last 2 hours of the day as the market un-pins, give us the best 3C data for the week.
As far as Index futures go, I'll have to take another look later tonight and if there's something there I'll post it, but for now, the positive divergence in all of them from earlier today that sent them higher is seeing a 1 min negative in all 3 majors, so I'll be interested to see if it sticks around, just as we caught a major move in 3C at 1:15 in the morning leading to some dramatic losses.
Talk to you soon, have a great night.
